Section 130 of Negotiable acts 1881 provides that ‘a person taking a cheque crossed generally or specially bearing in either case the words ‘not negotiable’ shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had’.
According to above section, the cheque marked ‘not negotiable’ to a crossed cheque does not bar it from transferred in the name of another person. However, a person who takes a cheque marked ‘not negotiable’ does not acquire better title than the person from whom he acquired the cheque. It means, a person takes a stolen cheque marked with ‘Not Negotiable’ from another person, and encashes it then he is liable to refund encashed money to the true owner.
For example; Mr.Panjwani issues a crossed cheque in favour of Mr.Khubchandani which does not bear the words ‘not negotiable’ therein. One Mr.Nowani steals it from the office of Mr.Khubchandani and endorses it to Mr.Gulabani who receives it for value in good faith without having an idea that the cheque is stolen by Mr.Nowani from Mr.Khubchandani’s office. In this case Mr.Gulabani who satisfies all the conditions to be a holder in due course, acquires a good title and he as a holder in due course is empowered with the right to recover the money not only from the thief Mr.Nowani, but also from all prior parties like Mr.Panjwani and Mr.Khubchandani.
In the above example, if the cheque bears the words “Not Negotiable” then Mr.Gulabhani will not get better title than Mr.Nowani from whom he acquired the cheque. In the other words, if Mr. Gulabani accepts a stolen cheque marked with ‘Not Negotiable’ and encashes it, then he is liable to refund encashed money to the true owner of the cheque.